Perit Industries has $135,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required Project A Project B $135,000 $ 0 $ $135,000 $ 66,000 $ 0 Working capital investment required Annual cash inflows 0 $ 22,000 $ 8,400 Salvage value of equipment in six years Life of the project 6 years 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 17%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. (Enter negative value with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative value with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment alternative (if either) would you recommend that the company accept?
Perit Industries has $135,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required Project A Project B $135,000 $ 0 $ $135,000 $ 66,000 $ 0 Working capital investment required Annual cash inflows 0 $ 22,000 $ 8,400 Salvage value of equipment in six years Life of the project 6 years 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 17%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. (Enter negative value with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative value with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment alternative (if either) would you recommend that the company accept?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section10.A: Mutually Exclusive Investments Having Unequal Lives
Problem 4P
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![Perit Industries has $135,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives
are:
Cost of equipment required
Project A Project B
$135,000 $
$
0
0
Working capital investment required
Annual cash inflows
$ 22,000
$135,000
$ 66,000
0
Salvage value of equipment in six years.
Life of the project
$ 8,400
$
6 years 6 years
The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount
rate is 17%.
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. Compute the net present value of Project A. (Enter negative value with a minus sign. Round your final answer to the nearest
whole dollar amount.)
2. Compute the net present value of Project B. (Enter negative value with a minus sign. Round your final answer to the nearest
whole dollar amount.)
3. Which investment alternative (if either) would you recommend that the company accept?
1. Net present value project A
2.
Net present value project B
Which investment alternative (if either) would you
3. recommend that the company accept?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe46568af-c368-488b-9143-b6defc8e04fb%2Fd1c2e7a6-c4ec-4b32-9e8b-79cdd0057a6a%2Fcib8xpo_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Perit Industries has $135,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives
are:
Cost of equipment required
Project A Project B
$135,000 $
$
0
0
Working capital investment required
Annual cash inflows
$ 22,000
$135,000
$ 66,000
0
Salvage value of equipment in six years.
Life of the project
$ 8,400
$
6 years 6 years
The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount
rate is 17%.
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. Compute the net present value of Project A. (Enter negative value with a minus sign. Round your final answer to the nearest
whole dollar amount.)
2. Compute the net present value of Project B. (Enter negative value with a minus sign. Round your final answer to the nearest
whole dollar amount.)
3. Which investment alternative (if either) would you recommend that the company accept?
1. Net present value project A
2.
Net present value project B
Which investment alternative (if either) would you
3. recommend that the company accept?
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